Regis Mixed 1Q11 Results - Analyst Blog

Regis Corporation(RGS) reported first quarter fiscal 2011 adjusted earnings of 30 cents per share, in line with the Zacks Consensus Estimate as well as prior-year quarter. Results reflect the benefits of cost-containment measures and improved customer traffic.
 
During the quarter, the company reported GAAP net income of $18.3 million, or 30 cents per share, up from $7.8 million, or 14 cents per share in the year-ago quarter.

 
Quarter Performance

Regis' total revenue plunged 4.5% year over year to $578.0 million due to lower footfall at its salons and a decline in total same-store sales. The company also missed the Zacks Consensus Estimate of $581.0 million.

 
Service revenues decreased 2.2% to $439.5 million; whereas product revenues fell 1.9% to $128.6 million and royalty and fee revenues were flat year over year at $10.1 million.

 
Consolidated same-store sales dropped 1.5%. However, same-store sales witnessed a gradual improvement in the quarter as the rate of decline was lower than the quarter's drop of 4.5%.

 
Domestic sales were down 4.7% year over year while International sales decreased 9.6%. Hair Restoration sales were up 3.7% in the quarter.

 
Operating expenses were $544.8 million, down 5.6% year over year, reflecting the benefits of expense-control initiatives. As a result, operating margin expanded 110 basis points year over year to 5.8%.

During the quarter, Regis' owned, franchised, or held ownership interest increased to 12,758 worldwide locations, as compared with 12,728 at the end of the fourth quarter of 2010.
  
Financial Position

At the end of first quarter 2011, the company increased its cash and cash equivalents to $194.8 million as compared with $151.9 million at the end of the fourth quarter of 2010. As of September 30, 2010, Regis reduced its long-term debt to $381.2 million versus $388.4 million as of June 30, 2010. 

Outlook
 
In fiscal 2011, Regis will focus on its top-line growth and expects same-store sales to improve, with positive comps expected in the second half of the year. Management also highlighted that it is currently experiencing positive same-store sales for the month of October, thus indicating an improved customer traffic.

Our Take

The economic downturn has severely impacted the company's earnings in the last few quarters, but finally we remain encouraged for the next quarter as the company pointed out that its second quarter has started on a positive note with same store sales picking up in the month of October. It appears that with economic recovery, customers are ready to spend; however, we have to wait and watch whether this trend will sustain till the end of the quarter or not. Thus, with satisfactory first quarter results and a positive tone for the coming quarter, estimates are expected to go up for the next quarter.

We have a Zacks #3 Rank (short-term Hold recommendation) on the shares. Our long-term recommendation for the stock also remains Neutral.